Funds investing in global sub-investment grade and riskier securities are gaining popularity among Koreans amid little profit-making assets.
According to Seoul-based financial data provider FnGuide on Wednesday, 31 high-yields funds available in Korea have attracted fresh investment of 1.4 billion won ($1.2 million) in the past week to bring the total assets under management to 986.1 billion won.
A high-yield fund promises higher returns while carrying higher risks by investing in corporate debts with lower credit ratings - rated Baa or lower by Moody`s Investors Service or BBB or lower by Standard & Poor`s.
The 31 high-yield funds in trading in Korea have yielded 9.5 percent on average this year, whereas average savings offer an interest rate of less than 2 percent in Korea.
“An annual return of 6 to 7 percent on investment in high-yield funds is possible even during the economic slowdown unless the world is hit by another financial crisis similar to the one in 2007-2008,” said an asset manager. “More are less fretful of global financial risks as central banks across the world have been taking preemptive monetary easing actions,” he added.
Among the 31 high-yield funds traded in Korea, Alliance Bernstein’s global high-yield fund has the largest 447.4 billion won assets under management. It also has performed the best, yielding 10.38 percent so far this year. The second largest is Alliance Bernstein’s monthly distribution global high-yield fund with 292.8 billion won. Its return for this year is 10.1 percent. The fund with the lowest return is Hanhwa’s monthly distribution short-term high-yield fund but even that has yielded 4.01 percent this year.
Investment experts, however, advise investors to take more caution on high-yield funds because these corporate bonds easily fluctuate depending on external market factors such as the direction in the U.S-China trade dispute.
By Park Eui-myung and Cho Jeehyun
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]